Fund of the week: Tap income in small businesses

29/04/2014

Lowland may be in the name, but lowly in performance it isn’t. Lowland Investment Company (LSE: LWI) “leaves its UK equity income peers trailing in its wake”, says Leonora Walters in Investors Chronicle.

The trust, which has consistently beaten its benchmark in recent years, has delivered a return of 24.7% over one year, 85.4% over three and 325.2% over five years, albeit after some short-term volatility.

Walters puts this down to manager James Henderson’s decision to diversify away from the ‘mega caps’ favoured by his peers, which he believes are in sectors facing long-term decline.

Lowland’s aim is to generate above-average returns of both capital and income over a medium to long-term horizon. It strives to have no more than half of its portfolio value in FTSE 100 stocks, with the rest made up of small and medium-sized firms (SMEs). Around 8% is invested in Aim-listed companies.

“Other income funds have huge commonality, but 60% of our holdings differentiate us,” Henderson tells Investors Chronicle. “A protection against macro worries is diversity in what you hold.” (In other words, he doesn’t hold all the same stocks as his peers, and the mix of shares he holds should help the fund hold up if the economy goes downhill.)

The trust has an ongoing annual charge of 0.62%. Around 30% of it is in industrial stocks, such as engineer Senior, while 26% is in financials, 13% in basic material stocks, and 12% in oil and gas.

Touchscreen technology specialist Carclo has proved a recent strong performer for the company, while Henderson has raised its holdings of strong dividend payers, such as BP and Rio Tinto.